Central Banks around the world act, but the euro still falls 09 July 2012 13:28 Tweet 09.05 AM Following on from the EU summit, last week we saw a major fight back from central banks the world over in response to what is a global slowing. Historically, following important summits we see a co-ordinated policy response, and the Bank of England led the way with more Quantitative Easing, which was swiftly followed up by the ECB, PBoC and even Denmark slashing Interest Rates. Despite such strong efforts, a familiar theme of fear is playing out which is seeing investors flock to safety. GBP The pound had a pretty solid performance against the euro last week, however for the most part depreciated against all other currencies. The big news came by the way of the Bank of England injecting £50bn more stimulus in to the economy, via its asset purchase facility, however elsewhere there were fairly negative headlines. Abysmal growth figures from the Manufacturing, Construction and Service sectors, certainly back up the Bank’s desire to try and stimulate an economy that has pretty much flat lined now for almost 2 years. Whilst the success of the Bank of England’s policy response is debatable, it certainly seems that QE is increasingly being ignored by markets. The onus is surely now on the government to implement structural reforms to really try and kick start the economy. For the most part, the negative UK backdrop has seen the pound lose out against most currencies, however due to the immense pressure on the euro; Sterling did manage to post a fresh high. To be able to buy euros at a higher price you would have to go back to the beginning of November 2008….44 months. With no major data being released from the UK today, or the week for that matter, the pound’s value will ultimately be dictated by events elsewhere. EUR The big news out of Europe last week was news that the ECB cut Interest Rates to historic lows from 1.00% to 0.75%. Whilst it could be deemed as a positive that the ECB are at least attempting to take action to improve conditions in Europe and relieve some market stress, the real concern came from how negatively President Mario Draghi spoke about the current eurozone situation. As a result, we have seen the euro fall to its lowest level in over two years against the dollar, and three and a half against the pound. Moving forward it is hard to see pressure relieving from the euro. The market has given its verdict on recent attempts to put an end to the debt crisis, and it is a resounding NO. With economic data continuing to reflect the escalating crisis in Europe, we get the sense that if we don’t see a major shift on issues such as joint debt liability and a pro-growth strategy we will see a major shakeup in the makeup of the entire region….we are at breaking point. This week is fairly thin on the data front, and today we have a few central bank figures speaking, so expect direction to be taken from overall market sentiment. USD The dollar had a pretty strong week last week, as still being the preferred global safe haven of choice we saw investors flock to its deep treasury market to hide. With overall market sentiment deteriorating rather rapidly, investors have little choice but to align their capital with what is still deemed the world’s safest economy. Despite jobs data on Friday coming in markedly below expectations we still saw the dollar appreciate. Data showed that only 80,000 jobs were added to the economy in June, against expectations of 100,000, whilst the unemployment rate held steady at 8.2%. Bizarrely enough the market interpreted the data as being “not bad enough” to justify QE3, which ultimately ended up benefiting the USD. It is now clear that US data is taking a turn for the worse, however it is important to remember that domestic data is far decoupled from the valuation of the dollar. With no data released today, markets will certainly be looking forward to FOMC minutes released on Wednesday for further clues about potential stimulus measures.